Income Tax Appellate Tribunal - Cochin
The Dy. Commissioner Of Income-Tax vs Popular Automobiles on 31 January, 2003
Equivalent citations: [2004]90ITD333(COCH)
ORDER
O.K. Narayanan, Accountant Member
1. This appeal is filed by the Revenue. The relevant assessment year is 1995-96. This appeal is filed against the order of the CIT (Appeals), Kochi dated 21.1.1999. The appel arises out of the assessment completed under Section 143(3) read with Section 142(2A) of the Income-tax Act, 1961. The Cross-objection is filed by the assessee.
2. The assessee in this case is a partnership firm engaged in the business of purchase and sale of automobile spare parts. The assessee-firm filed its return of income on 31.11.1995 admitting an income of Rs. 76,84,450/-. The return was processed under Section 143(1)(a) through the intimation dated 29.1.1996. The return was initially accepted. Subsequently, the case was taken up for scrutiny by issue of a notice under Section 143(2) on 19.3.1996. In the course of the assessment proceedings, the assessing officer passed an order under Section 142(2A), requiring the assessee to get its accounts audited by the Chartered Accountants nominated by the Commissioner of Incometax. The order under Section 142(2A) was passed on 9.9.1997. As per the said order, the assessee was required to furnish the Audit report on or before 31.12.1997. The nominated Chartered Accountants requested the assessing officer through their letter dated 24.12.1997 that further time may be granted to them for completing the audit, as the volume of the business transactions were so large that they would not be in a position to complete the audit within the time originally stipulated as on 31.12.1997. The nominated Chartered Accountants requested for the extension of time of file the Audit Report till 15.2.1998. this request put in by the Chartered Accountants was recommended by the assessing officer to the Commissioner of Incometax and as directed by the Commissioner, time was granted upto 15.2.1998. This extension of time to file the Audit Report was conveyed to the nominated Chartered Accountants by the assessing officer through her letter dated 29.1.1998. Finally, the said Audit Report was filed on 17.2.1998 and the assessment was completed on 3.9.1998, making various additions and determining a taxable income of Rs. 6,02,07,350/-.
3. The said assessment completed under Section 143(3) was taken in first appeal. The assessee raised two sets of contentions before the CIT (Appeals). The first set of contentions were that, for various legal reasons, the assessment was barred by limitation. The second set of contentions raised by the assessee were against the various additions made by the assessing officer in completing the impugned assessment.
4. As per Section 153, the assessment for the impugned assessment year 1995-96 ought to have been completed within a period of two years from the end of the relevant assessment year. Accordingly, the assessment should have been completed on or before 31.3.1998. But certain exceptions are provided therein. Clause (iii) of Explanation 1 to Section 153 provides for one of the exceptions stating that the period commencing from the date on which the assessing officer directs the assessee to get his accounts audited under Sub-section (2A) of Section 142 and ending with the last date on which the assessee is required to furnish a report of such audit under that sub-section shall be excluded, in computing the period of limitation. This clause of Explanation 1 was amended by Finance Act, 1996 with effect from 1.4.1957 and for the words "the date on which the assessee furnishes" were substituted by the words "the last date on which the assessee is required to furnish". This provision of law came into force with effect from 1.4.1997. In the light of the above provisions of law, the assessee submitted before the CIT(Appeals) that the order under Section 142(2A) was passed on 9.9.1997 and the date by which the assessee was required to furnish the Audit Report was laid down as 31.12.1997. The assessee submitted that the law which was in force on 9.9.1997., on which date the order under Section 142(2A) was passed, provided that the period commencing from the date on which the assessing officer directs the assessee to get his accounts audited under Section 142(2A) and ending with the last date on which the assessee is required to furnish the report of the Audit is to be excluded for the limitation laid down in Section 153. According to the assessee, the period to be excluded in the above manner was 114 days from 9.9.1997 to 31.12.1997. If this period of 114 days is added to the period of limitation under Section 153 ending on 31.3.1998, the assessment should have been completed latest by 27.3.1998. The assessee submitted that the assessment order was, however, passed on 3.9.1998 and therefore the assessment was time barred. The assessee also submitted that Section 153 is a procedural provision and therefore applies to all pending assessments. The assessment of the assessee for the impugned assessment year 1995-96 was pending on 1.4.1997, on which date Clause (iii) of Explanation 1 to Section 153 was amended and therefore the amended provisions should have been followed by the assessing officer.
5. The CIT(Appeals) accepted the contentions raised by the assessee on the ground of limitation and cancelled the assessment as time barred. The findings of the CIT(Appeals) are reproduced below for an easy understanding of the conclusion arrived at by him:
"I have carefully considered the argument of the Learned Representative and examined the facts of the case. It is seen from the assessment records that the assessment order was passed on 3rd September, 1998. The time limit for completion of assessment for Asstt. Year 1995-96 is upto 31.3.1998. As the appellant's case is covered under 142(2A), the period commencing from the date on which the Assessing Officer directs the appellant to get its account audited and ending with the last date on which the assessee is required to furnish a report of such audit is excluded. In the present case, order Under Section 142(2A) was passed on 9.9.1997 and the appellant was directed to furnish 142(2A) report by 31.12.1997. therefore, the period from 9.9.1997 to 31.12.1997 has to be excluded from the period of limitation. The date for filing 142(2A) report was fixed by 31.12.1998, hence a period of 114 days are additionally available to the assessing officer to complete the assessment. Therefore, the assessment should have been completed before 23rd July, 1998. But the order was passed only on 3rd September, 1998 which is beyond the time limit prescribed under Section 153 of the Incometax Act. Further, the amendment to Sub-section (iii) of Explanation 1 to Section 153 was brought in by the Finance (No. 2) Act 1996 w.e.f. 1.4.1997. As such, the assessing officer is well aware of the amendment brought to this procedural section. Section 153 being a procedural provision, the amendment brought in from 1.4.1997 was applicable to all the proceedings pending on that date. This view is supported by the decision of the Hon'ble Supreme Court in CWT v. Sharvan Kumar Swarup and Sons (210-ITR-886), wherein it was held "procedural law, generally speaking, is applicable to pending cases. No suitor can be said to have vested right in procedure". It was also held that procedural provision was applicable to all pending cases in 194 ITR 186, 700, 209 ITR 80 and 213 ITR 106. Even, the 142(2A) order was passed by the assessing officer only on 9.9.1997 well after the amendment came into existence. Therefore, the amended procedure should have been followed by the assessing officer. Hence, the assessment completed on 3rd September, 1998 was time-barred and hence cancelled."
6. It is against the above order of the CIT(Appeals) that the Revenue has come in appeal before us. The following are the detailed grounds raised by the Revenue against the order of the CIT(Appeals):
1.1 The CIT(Appeals) has erred in ignoring the time limit allowed for submission of report granted by the Commissioner of Incometax, Central-1, Chennai.
1.2 The CIT(A) has not considered the fact that a further extension was provided for getting the assessee's book audited with the approval of the Commissioner of Incometax, Central-1, Chennai.
1.3 The CIT(A) has erred in not appreciating the fact that a total period of 158 days was to be excluded in computing the period of limitation.
1.4 The CIT(A) ought to have appreciated that the assessment was finalised on 3.9.98 well within the period of limitation which expires on 5.9.98.
1.5 Considering the factual nature of the case, the CIT(Appeals) ought to have confirmed the assessment.
1.6 The CIT(Appeals) erred in assuming that the extension of time limit was available only with reference to the first directions as per which the report was required to be filed by 31.12.97.
1.7 As per the amendment to explanation 1(iii) of Section 153 the time limit is the period to be excluded is the time given to the assessee for getting his accounts audited till the last date on which the assessee is required to furnish the audit report.
7. We heard Shri E.S. Kannan, the learned departmental representative appearing for the Revenue. Shri Kannan contended that the argument of the assessee that the assessment has barred by limitation is not correct. He contended that as per the provisions contained in Section 153 of the Incometax Act, the period intervening between the order passed under Section 142(2A) and furnishing of the Audit Report by the assessee need to be excluded in computing the limitation period of two years for completing the assessment from the end of the relevant previous year. In the present case, the order under Section 142(2A) was passed on 9.9.1997 and the Audit Report was filed by the assessee on 17.2.1998, and therefore, a period of 158 days should have been excluded in computing the period of limitation of two years. Against this, the CIT(Appeals) has allowed only a period of 14 days on the ground that the provisions contained in Clause (iii) of Explanation 1 to Section 153 have been amended by the Finance Act, 1996 with effect from 1.4.1997. The learned departmental representative submitted that this amendment is applicable only for the assessments pertaining to the assessment years 1997-98 onwards and would not apply to the impugned assessment year, which is 1995-96. The learned departmental representative submitted that the provisions contained in Section 153 are not procedural in nature and therefore the CIT(Appeals) has erred in law in giving the benefit of the amended provisions of law in deciding the period of limitation in respect of the impugned assessment year 1995-96.
8. Shri A.S. Narayanamoorthy, the learned Chartered Accountant, appearing for the respondent-assessee, on the other hand, submitted that the assessment is barred by limitation not on one ground alone, but on two grounds. The first contention is that the amended provisions of law with effect from 1.4.1997 will apply to the impugned assessment year as well, as the amendments were procedural in nature. The order under Section 142(2A) was passed by the assessing officer on 9.9.1997, i.e. after the amendment has been brought in by the Finance (No.2) Act, 1996, which has the effect that the amendment would be operative from 1.4.1997. Therefore, any assessment pending as on 1.4.1997 would be ruled by the amended provisions of law and not by the old provisions of law. Accordingly, the learned Chartered Accountant submitted that the period to be excluded in computing the limitation period should be the period from the date of passing of the order under Section 142(2A) to the date upto which the Audit report is required to be furnished. He submitted that the exclusion period cannot be extended till the date on which the assessee furnished the Audit report, as required by the assessing officer. The Revenue has ignored these crucial dates in computing the period of limitation, as provided in Section 153. The CIT(Appeals) has correctly appreciated the law on the subject and therefore he is justified in holding that the period to be excluded in computing the limitation period is only 114 days and not 158 days, as argued by the Revenue. The learned Chartered Accountant submitted that the view of the learned departmental representative that the old provisions of law should apply in this case is not correct. He submitted that in the copy of the Finance Act, which was filed by the learned departmental representative at the time of hearing, para (SIC) amendment to Section 153 clearly mentions that "the last date on which the assessee is required to furnish the audit report" is effective from 1.4.1997. Therefore, he contended that the amended provision is applicable in assessee's case, since the assessing officer has initiated the action after 1.4.1997 and therefore the period of exclusion available to the assessing officer is only 114 days. Therefore, the assessment should have been completed on or before 23.7.1998, whereas in fact, the impugned assessment was completed on 3.9.1998. Therefore, the assessment is clearly time-barred.
9. In addition to the above legal argument on the basis of the amended provisions of law brought in by the Finance (No. 2) Act, 1996 with effect from 1.4.1997, the learned Chartered Accountant urged one more legal ground. He submitted that as per Section 142(2A), the assessing officer has power to appoint an Accountant during the course of assessment proceedings, considering complexity of the accounts. As per proviso to Section 142(2C), the assessing officer, on an application made in this behalf by assessee, may extend such period or periods, as he thinks fit, for filing the Audit report. However, the aggregate period for filing the Audit Report shall not exceed 180 days. The learned Chartered Accountant submitted that the extension of time can be made on an application made by the assessee alone and not otherwise. In the present case, the assessee has not sought any extension of time beyond 31.12.1997, which was the original date stipulated by the assessing officer. A reading of the proviso below Section 142(2C) makes it clear that the application for extension of time can be made by assessee alone. In the present case, it is seen that the extension of time has been granted on an application put in by the nominated Auditors. The learned Chartered Accountant submitted that this is quite illegal and bad in law and the procedure adopted by the assessing officer is not in conformity with the proviso to Section 142(2C). The learned Chartered Accountant relied on the decision of the I.T.A.T., Bangalore Bench in the case of Madhuvana House Building Co-operative Society v. Astt. Commissioner of Incometax (76-TTJ-948).
10. The learned Chartered Accountant submitted that the impugned assessment is barred by limitation on two grounds. The first ground is that the assessing officer should have considered the amended provisions of law contained in Section 153 in the matter of computing the period of limitation. The period to be excluded in computing the period of limitation is the period between passing of order under Section 142(2A) and the date on which the Audit Report should have been filed before the assessing officer. Secondly, the assessment is barred by limitation as the assessee has not filed the Audit Report on or before 31.12.1997, the date on which the assessee was originally required to furnish the audit report. As per Section 153(3), the period from the order under Section 142(2A) upto the date on which the assessee furnish the Audit report is to be excluded for reckoning whether the assessment is barred by limitation. The exclusion of this period arises only when the assessee files the Audit report within the specified time and not in cases where the Audit Report was not submitted. If any extension of period was necessary, the application should have been made by the assessee alone and not by anybody else. In the present case, as the assessee never filed any such letter for extending the period for getting he accounts audited, the period to file the audit report in fact expired on 31.12.1997 and therefore the assessing officer could exclude only a period of 114 days in computing the period of limitation, and on this account also the assessment is barred by limitation. The learned Chartered Accountant relied on the decision of the Hon'ble Madhya Pradesh High Court in CIT v. Dhariwal Sales Enterprises (221-ITR-240).
11. The learned Chartered Accountant further submitted, pressing the Cross-objection filed by the assessee, that if by chance the appeal filed by the Revenue is allowed by the Tribunal, the Commissioner of Incometax (Appeals) may be directed to consider the other ground in respect of the additions raised by the assessee in the appeal filed before him, while disposing of the first appeal, the CIT(Appeals) had not considered the various grounds raised by the assessee in the context of the additions made by the assessing officer, as according to him, the assessment was barred by limitation and there was no necessity to proceed further. Therefore, the learned Chartered Accountant submitted that if the appeal of the Revenue is likely to succeed, then the assessee must be given a change to agitate its various contentions in the matter of additions made to the total income. The learned Chartered Accountant submitted that only on the reversal of the order of the CIT(Appeals) on the legal ground, the assessment as such may not be confirmed.
12. We heard both sides in detail. The impugned assessment year in this case is 1995-96. As per the provisions of Section 153 of the Incometax Act, 1961 an assessment need to be completed within a period of two years from the end of the relevant assessment year. Therefore, the assessment in this case, in ordinary parlance should have been completed on or before 31.3.1998. But the assessing officer has directed the assessee in this case to get its accounts audited under Section 142(2A). Therefore, the period between passing the order under Section 142(2A) and getting the accounts audited need to be excluded in computing the limitation period. The original date by which the audit had to be completed was 31.12.1997 as per the order of the assessing officer. But, in fact, the audit report was filed only on 17.2.1998. Meanwhile, the Auditors had written to the assessing officer seeking further extension of time upto 15.2.1998. Accordingly, time to complete the audit was extended upto 15.2.1998. But in this context it is to be seen that the assessee has never made any such application before the assessing officer seeking extension of time to file the audit report. Such a request was made by the Auditors through their letter dated 24.12.1997. A copy of the said letter is placed before us. The letter is addressed to the Asstt. Commissioner of Incometax, Central Circle-1, Ernakulam. It is not seen in the said letter that copy of that request is endorsed to the assessee in question. Thereafter the assessing officer writes to the Commissioner of Incometax on 30.12.1997 recommending to extend the time upto 15.2.1998. A copy of the said letter is seen endorsed to the Additional Commissioner of Incometax, Central Range, Ernakulam. It is not seen that a copy of the letter is endorsed to the assessee. Thereafter, the Commissioner of Incometax informs the assessing officer that the extension of time is granted upto 15.2.1998 as recommended by her. Here also, a copy of the letter is endorsed to the Addl.Commissioner of Incometax, Central Range, Ernakulam. The assessee is not in the picture. On receipt of the communication from the Commissioner's office, the assessing officer write to the Auditors on 29.1.1998 that time to file the Audit Report is extended upto 15.2.1998. No copy of this letter is endorsed to the assessee. A perusal of all these official records makes it very clear that the assessee was never in the picture in seeking extension of time to file the Audit Report. Neither the Auditors informed the assessee, nor the assessing officer intimated the assessee that on the request of the Auditors the assessing officer is recommending for extension of time. Therefore, what we find is that as far as the assessee is concerned, the period to file the Audit Report expired on 31.12.1997. Thereafter the assessing officer might have extended the period to file the audit report upto 15.2.1998 on the request of the Auditors. But it is quite certain that the extension of time was not granted on the request of the assessee. To put the matter in simple language, the assessee was never in the picture in the whole exercise of extending the time to file the audit report beyond 31.12.1997. As rightly argued by the learned Chartered Accountant, any application for extension of time can be made only by the assessee, as provided in proviso to Section 142(2C). This legal position was considered by the Bangalore Bench of the Tribunal in Madhuvana House Building Co-operative Society v. Asstt. CIT (76-TTJ-948). In that case, in the context of a Block Assessment, the assessee was required to get its accounts audited under Section 142(2A). In that case, exactly similar to the facts of the present case in hand, the assessee did not make any application for extension of the period to get its accounts audited. Such an application was made by the Auditors. On the basis of the application made by the Auditors, time was extended. Thereafter, the period of limitation was computed in the light of the extended period available on the basis of the application made by the nominated Auditors. The question was whether the assessment was barred by limitation or not. The Tribunal held that no application for extension of time was made by the assessee and therefore the extended period of time could not be excluded in computing the period of limitation and therefore the assessment was beyond the permissible time under Section 158BE and thus bad in law. The above decision of the Tribunal, Bangalore Bench has been arrived at on the basis of the clear provisions of law on this point. As per Section 142(2C), every report under Sub-section 142(2A) shall be furnished by the assessee to the assessing officer within such period as may be specified by the assessing officer. But the proviso thereto gives an exception to this case. According to the proviso, the assessing officer may, on an application made in this behalf by the assessee and for any good and sufficient reason, extend the said period by such further period or periods as he thinks fit; however, the aggregate of the period originally fixed and the period or periods so extended shall not in any case, exceed 180 days from the date on which the direction under Sub-section (2A) is received by the assessee. The Tribunal in the said case held that a plain reading of the above proviso makes it clear that the application for extension of time can be made an application made by the assessee. Where there is no such application made by the assessee, the Tribunal held that the extension granted by the assessing officer would be illegal and therefore that extended period would not be considered for exclusion in computing the period of limitation under Section 153.
13. In the light of the provisions contained in Sections 142(2A), 142(2C), proviso thereto, and Section 153, we are of the view that any request for the period of extension to file the Audit Report need to be made by the assessee and the period extended on the request of the assessee alone could be excluded in computing the period of limitation. In the present case, as evident from the various official papers placed before us, it is seen that the assessee never sought for extension of time and was never informed about granting extension of time and in such circumstances the extended period relied on by the assessing officer cannot be considered in excluding the period of limitation to be computed under Section 153 of the Incometax Act, 1961. Agreeing with the decision of the ITAT, Bangalore Bench, we hold that on this ground the assessing officer would get only a period of 114 days in computing the two year period of limitation under Section 153 and the assessing officer will not get a period of 158 days, as canvassed by the Revenue. Therefore, on this ground this impugned assessment completed under Section 143(3) need to be held as barred by limitation.
14. Further, even the time extended by the assessing officer actually expired on 15.2.1998. But the Audit Report was obtained only on 17.2.1998. Therefore, even if the theory of extended period is accepted as valid for a moment, that argument also does not save the assessment, because the report was not furnished even within the extended period of time. Therefore, even if the extended period of limitation sought by the Revenue is accepted for a moment, even then, the assessment is time bared further by a period of two days.
15. Therefore, we find that the CIT(Appeals) is justified in cancelling the impugned assessment as time barred. We may also like to state here that we have not examined the ground relied on by the CIT(Appeals) that the amended brought in Clause (iii) of Explanation 1 to Section 142(2A) is procedural in nature or not.
16. We further make it clear that the return filed by the assessee in this case having been initially processed under Section 143(1)(a), the order of the CIT(Appeals) does not invalidate the return filed by the assessee and the income returned by the assessee voluntarily. The Income returned by the assessee as processed under Section 143(1)(a) and the tax paid/payable by the assessee on that income shall not be disturbed by the order of the CIT(Appeals). This is because what is cancelled by the CIT(Appeals) is only the assessment completed under Section 143(3) read with Section 142(2A). Therefore, the intimation passed by the assessing officer under Section 143(1)(a) survive.
17. As we have upheld the order of the CIT(Appeals), there is no occasion for us to consider the alternative ground raised by the assessee in its cross-objection. Therefore it becomes infructuous.
18. In the result, the appeal filed by the Revenue and he Cross-objection filed by the assessee stand dismissed. Order accordingly.